As the birthplace of P2P lending, the UK has been the fertile soil for the development of fintech. In recent years, many outstanding enterprises have emerged. We travelled to London in June 2017 to visit several representative fintech companies, and here we share one of a several special reports on their innovative business models.
SyndicateRoom was founded in September 2014 by Gonçalo de Vasconcelos (CEO) and Tim Britton (CTO) and is based in Cambridge in the U.K. SyndicateRoom has equity-based crowdfunding and fund management licenses from the U.K. Financial Conduct Authority (FCA) and is a member of the LSE (London Stock Exchange).
SyndicateRoom mainly uses a "lead-and-follow" investment model. Any early-stage project that wants to go online at SyndicateRoom must first be invested by at least one angel investor or venture capital fund, then individual investors may invest with a minimum investment of £1,000 British Pounds. At present, angel investing mentors who have participated in investment guidance on SyndicateRoom's platform include the "Annual Angel Investor in the UK" Peter Cowley and "Super Angel Investor" Jonathan Milner.
Investment in the Private Market: "Lead-and-Follow" Model
SyndicateRoom uses a "lead-and-follow" investment model, in which leading investors negotiate with the company on relevant terms. The leading investors can invest in their own funds, and then other investors can follow the lead investors and invest through the online platform.
The company's original intention is to allow online investors to invest in target companies with professional investors in the same economic situation. This also means that online investors gain access to professional investors' protection, and in the latter round of financing, online investors have the same rights to participate in the negotiations to avoid excessive dilution of funds.
Compared to other factors, SyndicateRoom pays more attention to the return potential of financing projects, as well as the exact valuation of projects by professional investors on the platform. These two factors can effectively reduce the speculative risk for non-professional online investors.
Since its inception, SyndicateRoom has helped more than 110 companies to raise more than £87 million. The survival rate of startups which finance on SyndicateRoom's platform is as high as 97% compared to 75% on most platforms in the industry. Of the startups on SyndicateRoom's platform, 34% of them come from the life sciences industry, 30% come from the Internet and software industry, and the remaining 46% are spread over technology, entertainment, engineering, food, retail and other industries.
Investment in the Open Market
Members of SyndicateRoom can use the online platform to participate as individual investors in Initial Public Offerings (IP0s) of listed companies, and to use the platform to learn and understand invested companies' relevant information. SyndicateRoom plays the role of a broker in such IPO investments.
Fund Twenty8
Fund Twenty8 was launched in 2016 as a passive management fund on SyndicateRoom's platform. The fund is like an index fund and it includes early-stage projects on at least 28 platforms. Fund Twenty8 automatically follows and invests in the most popular projects, which are led and invested by well-known angel investors and many individual investors. Compared to the traditional single fund manager operating model, the fund portfolio of Fund Twenty8 is decided by angel investors, venture capital and by leading investors on the platform. The fund also tracks the investment preferences of experienced high net worth investors on the platform to determine the fund's investment proportion in each project. SyndicateRoom charges 1% of initial cost and 1% of annual management fee for the fund.
Q&A
Below is our interview with Goncalo de Vasconcelos, Founder and CEO of SyndicateRoom:
Q: Would you please introduce SyndicateRoom in brief?
A: Our company was founded in 2013. At first, it was an equity crowdfunding platform aimed at early-stage enterprises and all projects needed to have leading investors. At present, our platform has involved in all stages of equity investment including early-stage projects and IPO projects. The company has also expanded its business to asset management and we have a fund called Fund Twenty8. We are a technology-driven company with only 32 people in our team.
Q: How does the company pick the projects and leader investors?
A: After receiving the application of the financing company, the platform will ask the company some questions. If a company passes automatic screening it will receive the analysts' inquiry and audit. Then, the analyst will lead the investment valuation and business investigation. Finally, the investment committee on the platform will decide whether to invest and go online with the project based on the results.
Many companies already have their own leading investors before applying on the platform. We then go online to verify the investment experiences and projects of leading investors. More importantly, we investigate whether the leading investors have connections with the invested companies and whether the leading investors have previously invested in the company. If they have previously invested, then we will find out how much the amount was. If the leading investors invested £100,000 in the previous investment round, and they only want to invest £10,000 in this round, then there might be problems. But if the leading investors want to make additional investment of £1 million in this round, then we'll have more confidence in the company.
Q: Why did you build Fund Twenty8?
A: Fund Twenty8 mainly aims at more passive investors who do not want to select their own projects. It turns out that the fund really covers the crowd that we have not covered before. A lot of people who registered the platform but have never invested before chose to buy Fund Twenty8 after its launch.
Like ETFs, Fund Twenty8 is a passive fund containing early projects on the platform. Using data on the platform, we selected the most highly focused and most popular projects on the platform and placed them into the fund. The entire process is automated.
Q: Why do you carry out an IPO business?
A: The business was initially launched mainly for the Alternative Investment Market (AIM) in the London Stock Exchange. Many institutional investors do not invest in the enterprises in the AIM because the size of the enterprises is too small, while many individual investors are more optimistic about the development potential of some of the enterprises. For the sake of both the enterprises and the investors, we have chosen to carry out this project. This project was launched in March 2017, with the proportion of trading volume on the platform still relatively small.
